VAT on new build

[Jimbo37]

Mmh, I'm having a tricky time

 - started a renovation 6 weeks ago (with PP for renovation of existing and new garage). The first thing up was to build a new garage, which is half done (the idea was to put all my contents in there, and start the reno proper then)

 - then it rained, and the house I planned renovating flooded, badly

 - so now, Im switching my plans, and want to build a new house (I guess new PP required, for new build house and garage)

If I want to avail of the zero VAT on new builds for my house (which I do, of course), do I have to knock the new garage already started?? See the VAT clarification excerpt attached. (This is hurting my head, badly)

TIA

Edited September 3, 2020 by Jimbo37

[SuperJohnG]

I've no idea if this is correct. But as its a new garage I would think it was OK. 

Whether you done the garage first or last makes no odds as its onky the house part you were concerned with and needs knocked down. There was no garage so thats a new bit. 

 

 

 

 

[Jimbo37]

I hope you are right @SuperJohnG, but I'm worried the new garage is part of the "to be knocked" house. Anyone have a similar experience, and what professional might be the one ask?

[Temp]

The main problem I see will be your invoices for the garage being dated before your planning permission. That's been a problem in the past.

[Temp]

See 3.2.1 and the linked paragraphs.

https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#para3-2

 

[Temp]

Not very clear but..

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst02250

 

 

[Temp]

This might be nearer to your case...

https://www.gov.uk/hmrc-internal-manuals/vat-construction/vconst02370

 

If a piece of work is not an enlargement, extension or annexe, it qualifies as the construction of a building.

 

This is illustrated in Kahal Imrei Chaim Limited (VTD 19625). The case involved a development at the rear of an existing synagogue that adjoined the existing building to create a single, fully integrated but much larger synagogue. It was held on the facts that the structure was not an enlargement, extension or annexe to an existing building, but the construction of a building. It was not dependent on or ancillary to the existing building and did not make that building bigger. A new synagogue was created that made incidental use of the existing building.

 

But note it says buiiding not dwelling.

[Jimbo37]

Thanks @Temp - would you seek clarification from VAT in advance, or independently and argeue the case, if it arose?

[newhome]

There was a tribunal case here that has some similarities. I think you should be ok to claim for the new build as long as you wait until planning permission is formally granted before starting the demolition as that is the date that zero rating can apply. I don’t think you will be able to claim for the garage but I don’t see why you should need to demolish it either. As long as none of your invoices pre date the date of the planning permission no one should be any the wiser. Can you leave the garage off the PP anyway if it meets the criteria for permitted development? 

 

Added to say caveat emptor ....

 

https://forum.buildhub.org.uk/topic/6851-a-guide-to-the-vat-reclaim-process/?do=findComment&comment=226636

 

[Temp]

The main issue/risk it that HMRC might refuse the reclaim for the house because not all buildings on the site (eg the garage) were knocked down.

 

6 hours ago, Jimbo37 said:

Thanks @Temp - would you seek clarification from VAT in advance, or independently and argeue the case, if it arose?

 

You can try asking HMRC but in recent years HMRC have stopped providing opinions "in advance" on virtually anything. If they reply at all they will probably refer you to the guidance that says you need to demolish all buildings on the site.

 

You can try an accountant but it would need to be one very familiar with this area of VAT law and case law. My guess is your average local accountant would probably just hedge his bets and point out the risk you already know. 

 

The only way to know for sure is to see what HMRC say afterwards. In order to minimise the chances of HMRC looking at the reclaim too carefully I think I would  show the garage on the new Planning Application but not claim for anything with invoices dated before PP is granted (eg only claim for things purchased after PP is granted). That way it looks pretty much like a normal run of the mill self build reclaim. 

 

Other things to think about..

 

VAT on landscaping, trees and plants etc can only be reclaimed if there is a landscaping plan included with the planning grant. So you might care to include one in the planning application even if the planners are unlikely to make one mandatory.

  

For a new build a contractor doing "supply and fit" must zero rate BOTH materials and labour to you. You only reclaim VAT for materials you actually purchase yourself. Don't pay VAT in error on supply and fit as you can't reclaim it from HMRC. If necessary get contractors to requote at 0% VAT before they start.

 

Has the CIL been introduced in your area?  Starting work on site (as you have done with the garage) before you have done ALL of the paperwork for the self build exemption can mean you loose the exemption. That may of may not matter depending on how big the replacement house is. 

 

Sorry a lot of this is in other parts of the forum.

 

 

Edited September 5, 2020 by Temp

[Jimbo37]

8 hours ago, newhome said:

 Can you leave the garage off the PP anyway if it meets the criteria for permitted development? 

I see your thinking, but this idea makes me nervous, beacuse I think it puts me in contravention of bullet 5 of the (see word "site") of the "what counts as new" in the VAT clarification note (as pasted into the OP)

[Jimbo37]

2 hours ago, Temp said:

The main issue/risk it that HMRC might refuse the reclaim for the house because not all buildings on the site (eg the garage) were knocked down. 

Yes, my main concern

2 hours ago, Temp said:

You can try an accountant but it would need to be one very familiar with this area of VAT law and case law. My guess is your average local accountant would probably just hedge his bets and point out the risk you already know. 

Again, yes, done that and got that answer from my "average local accountant". I think I will seek a specialist and persue this a bit further, to hopefully resolve the issue in advance with a view to getting my clearance in advance. (This, presently, is my Plan A) As the garage (or store, as I called it on the original PP) is timber structure, I could lay it to the ground - the VAT saving would cover the cost anyhow (this, presently is plan B). Does anyone know an accountant, specialist in this area?

2 hours ago, Temp said:

The only way to know for sure is to see what HMRC say afterwards. In order to minimise the chances of HMRC looking at the reclaim too carefully I think I would  show the garage on the new Planning Application but not claim for anything with invoices dated before PP is granted (eg only claim for things purchased after PP is granted). That way it looks pretty much like a normal run of the mill self build reclaim. 

This idea seems to deal with the issue nicely - effectively pay the VAT to date, and side step furture VAT - I can live with that, if it works out (this, presently, is my Plan C). Also, my garage builder has suggested this. Of course, it makes me nervous, as the sums at risk is hugh (for me anyhow) and I suppose I am argueably/potentially toying with the law (im a bit chicken!)

2 hours ago, Temp said:

Other things to think about..

 

VAT on landscaping, trees and plants etc can only be reclaimed if there is a landscaping plan included with the planning grant. So you might care to include one in the planning application even if the planners are unlikely to make one mandatory.

  

For a new build a contractor doing "supply and fit" must zero rate BOTH materials and labour to you. You only reclaim VAT for materials you actually purchase yourself. Don't pay VAT in error on supply and fit as you can't reclaim it from HMRC. If necessary get contractors to requote at 0% VAT before they start.

 

Has the CIL been introduced in your area?  Starting work on site (as you have done with the garage) before you have done ALL of the paperwork for the self build exemption can mean you loose the exemption. That may of may not matter depending on how big the replacement house is. 

Some good tips here, thanks. On CIL - Im in N Ireland, and I dont think CIL applies - Im building a fairly standard 4 bed family home, 200SQM max.

Thanks for input @Temp

Edited September 5, 2020 by Jimbo37

[newhome]

From the reclaim form notes

 

Is the property that you have built a new build?
A new build is a building that has been constructed from scratch.
In general, unlike a conversion, it will not incorporate any part of an existing building. This means that where a building is constructed on the site of a pre­existing building it will not incorporate any part of the former building above ground level.
So if you are constructing your new house on the site of a former building, your claim will not be eligible unless:
• you have demolished the pre­ existing building to ground level (you may
retain cellars, basement and the ‘slab’ at ground level), or
• the new building retains no more than one façade (2 on a corner site) of
the pre­ existing building so long as the façade is being retained as an explicit condition in your Planning Permission.

 

As a garage is not a dwelling I don’t see that your claim will fail and the word building is used in the singular, but it would be best to write to HMRC and ask your specific question. Phoning them is no good as they have gone back on phone advice in the past claiming that there is no record of it. The tribunal appears to take a dim view of scenarios where HMRC have confirmed something and then backtracked later. 
 

In addition, in the tribunal case I linked to the claim was only refused for the invoices that pre dated the new PP. The whole claim did not fail. 
 

 

[Jimbo37]

@newhome Great oinfo, and great advice. Thanks

[Dave Jones]

is the garage detached or part of the house to be demolished ?

[joe90]

If the new garage is not complete, is it a building? I think you may only loose the VAT on materials used before the planning date.

[Jimbo37]

@Dave Jones detached

@joe90 I have to get it completed, as I plan on putting my office there. Ive resigned myself to letting the VAT on garage go

Edited November 9, 2020 by Jimbo37